A Legacy of Innovation
K-VA-T operates 94 full-service Food City supermarkets in the tri-state region of Kentucky, Virginia, and Tennessee.
K-VA-T Food Stores, Abingdon, VA, operates 105 grocery stores in the tri-state region of Southeast Kentucky, Southwest Virginia, and Northeast Tennessee including 94 Food City full-service supermarkets and 11 Super Dollar limited assortment stores.
Topco Membership
K-VA-T Food Stores joined Topco Associates, Skokie, IL, in 1995. This is the country’s largest buying group with more than 60 supermarket, wholesaler, and foodservice members which share year-end profits based on their individual company’s level of participation.
“We see our private brands program as a real cornerstone of what our company stands for and that is: a commitment to quality, a commitment to consistency, and a commitment to value for our customers,” says Steve Smith, president and CEO.
“Through our relationship with Topco we have been able to take our private brands program to a different level than we would have been able to do by ourselves. We are a relatively small company in the scheme of things. We do about $1.8 billion in total sales.” K-VA-T ranks 83rd in Private Label’s Top 100 North American Retailers Report – see page 98 in this issue.
“Since joining Topco, we have seen our private brand penetration rate go from the single digits to the high 20s where it is today,” he points out. Indeed, K-VA-T has increased its private brand SKU count from 200 items in 1995 to today’s count of 6,000-plus SKUs.
Farmbest dairy line includes nonfat yogurt in a variety of fruit flavors.
Smith attributes the growth of his company’s private brands business to the quality of the product and “the ability of our customers to understand that our private brands are a value proposition for them.”
As he sees it, the private brands program helps his company to be much more competitive in its pricing of national brands “by providing us with the additional margin that it offers. It puts us in a much better position to compete with the Walmarts of the world on price than we would be if it were not for our private brands program.”
For K-VA-T it is important to maintain a price gap in favor of its private brand compared to its equivalent national brand. To put it simply, K-VA-T needs to price its national brands to be competitive with other retailers in its trading area and it needs to price its private brands to be competitive to the national brands in its own stores.
Because the company believes it is important to maintain a price gap in favor of its private brands compared to the national brands, K-VA-T shields the price gap for most of its private brand products when the comparable national chains go on promotion. “We think shielding works and insures the success of your private brands in the long term,” notes Smith. “Otherwise, you create confusion among your customers of what is the real value is of your private brands.”
Legacy Brands
To improve its competitive edge against the leading national chains in its trading areas, since the spring of 2007, K-VA-T has begun to bring back classic regional brands that were displaced from store shelves in the 1980s and 1990s due to the growth of national brands.
Smith aptly refers to these reborn regional brands as Legacy Brands. “At one time, they were the number one or two brand in our market area,” he notes. “For one reason or another – some through bankruptcy, others through acquisition by major manufacturers – they all got phased out. Today, nobody owns the rights to these brands. So we registered them with the Federal Trade Commission and brought them back with the same product logos and formulas as best we could to recreate them.
“We have been able to bring back products that people remember growing up as children. Our Legacy Brands have been a tremendous success for us and as a group represent a significant share of our private brand penetration. For example, Kern’s bread is the number one selling SKU in its category.
"We see our private brands program as a real cornerstone of what our company stands for and that is a commitment to quality, a commitment to consistency, and a commitment to value for our customers. -Steve Smith
“So these brands have come back in a very positive way for us. They also provide us with a lot of extra margin because we can procure them at the relative cost of private label but we are able to price them comparable to the brand names in their categories.”
To date, K-VA-T has reintroduced to its trading area five Legacy Brands. They include:
- Kay’s Classic Ice Cream,
- Terry’s Classic Snacks,
- Lay’s Classic Meats,
- Kern’s Bread, and
- Farmbest dairy products.
Farmbest is the most recent addition to the Legacy Brand line-up. “We pride ourselves on top quality products, competitive pricing and exceptional customer service,” said Smith at the time of the brand’s relaunch in May 2009. “Like our company, Farmbest was also a local operation and we’re thrilled to bring back such a popular line of top quality dairy products.”
According to Smith, Farmbest was introduced in the late 1960’s and found strong popularity with consumers throughout the 70’s and 80’s. The new Farmbest line includes milk, sour cream, cottage cheese, yogurt, dips, orange juice and tea. The Farmbest products are produced locally in London, KY.
Smith describes the Legacy Brands as a Win, Win, Win. “It’s a win for the consumer to be able to enjoy these brands again; it’s a win for K-VA-T because they are great items to sell, and it’s a win for the community because we are creating jobs with these locally made products as opposed to national brands manufactured somewhere else.”
Taking a page from the playbook of some national chains, K-VA-T is considering selling its Legacy Brands to other retailers in its trading area. The first brand that is likely to be put on the market is Kay’s Ice Cream. “We have our ice cream manufacturer/distributor interested in putting Kay’s Ice Cream on its route trucks that service mainly small mom-and-pop grocery stores and convenience stores,” says Smith.
He sees this as another win, win that provides K-VA-T with extra revenue and provides the retailer with more brand recognition.
Lay's Classic Meats and Kern's Bread are two Legacy Brands that have come back to serve as family favorites in K-VA-T's trading area.
“We have one or two additional Legacy Brands that we are exploring, but we are not prepared to announce them at this time,” says Smith. “As time goes on, we continue to challenge ourselves concerning what categories, what items, and what brands would be successful in our stores. We want to be pretty discriminating and aren’t interest in adding a new brand that would only become a modest volume producer. We want a player from the past that has held the first or second market share position; one that we can recreate the flavor profile, and build brand loyalty off of that flavor profile.”
Super Dollar Format
Super Dollar Discount Foods is a new limited-assortment store format that the retailer has created to serve markets that can’t support its conventional supermarket format.
Smith gives credit to Richard Gunn, executive vice president, K-VA-T, for developing the key components of the format which is designed to help the retailer compete more effectively against the encroachment of the national limited assortment chains and supercenter chains into its trading area.
The format represents lower overhead and operating costs than a conventional supermarket because it recycles abandoned retail space with smaller square footage (15,000 to 25,000) than conventional stores. Opening costs are also kept down through recycling and refurbishing used store equipment and fixtures.
Prices are kept down by limiting the number of national brands carried and increasing the presence of private brand product lines. Of the 10,000 SKUs stocked, 6,000 are private brand items. Of the 4,000 national brand items only about one-half of them are stocked on a regular basis. The other national brand items are rotated in and out based upon discount promotional programs.
Topco corporate brands are the mainstay private brands with the Valu Time economy brand serving as the anchor brand and supported by Food Club which is the national brand equivalent, and Top Care which represents health and beauty care items. Super Dollar stores also carry a limited selection of World Classics Trading Co. premium items, Full Circle natural and organic products, and Paws Premium pet foods and accessories.
As the anchor brand, Valu Time is given prime shelf position in every section of the store. The Legacy Brands are also visible with Lay’s processed meats playing a primary role in the meat department, Farmbest in the dairy, and Kern’s bread in the bread department.
K-VA-T operates 11 Super Dollar stores in its trading area. This discount food format is employed in price-sensitive markets that can't support a full-line supermarket. It is also designed to compete against limited assortment stores and supercenters.
Super Dollar stores carry a limited assortment of beer and wine.
There are a number of departments that offer only exclusive or private brands including health and beauty care, and general merchandise. A number of other key categories offer only limited SKUs in national brands such as in the liquid laundry detergent aisle that carries only two branded skus and four tiers of national brand equivalents.
In a press release announcing opening of a new Super Dollar store in Lynchburg, VA, earlier this year, the retailer told the public:
“The company’s Super Dollar format offers top-selling supermarket items at rock bottom prices. In addition to select national brands, the stores also stock thousands of exclusive Food Club and Valu Time items, featuring outstanding quality at a savings of up to 40%.
“The store’s meat department includes packaged meats, along with top quality fresh meat items, cut and packaged inside the store by skilled meat cutters who are also available for custom cuts and orders. The Produce Department features fresh from the farm fruits and vegetables at unbeatable savings. Shoppers will also find a large offering of Dairy and Frozen Food items, Greeting Cards, and a special Dollar Zone section, including a wide variety of dollar-priced general merchandise and seasonal items.”
Grassroot Promotions
K-VA-T builds customer loyalty by tailoring their corporate-level and store-level promotions to benefit the local community. In many cases, K-VA-T promotes sales of its private brands in its marketing programs.
For instance, the retailer helps raise funds for local schools though its Food City School Bucks Program. Through the use of the retailer’s ValuCard loyalty program, for every $10 worth of private brands that customers buy, the retailer donates $1 to their school of choice.
“The Super Dollar Store format is designed to compete against the limited assortment stores and supercenters of the national retail chains,” —Richard Gunn
Shoppers can also earn Fuel Bucks for use at the retailer’s Gas’N Go fuel stations. For every $10 worth of K-VA-T’s private brand products that shoppers buy, they earn one Fuel Buck.
K-VA-T also sponsors two major NASCAR race events each year: the Food City 250 in the fall, and the Food City 500 in the spring, which are held at the Bristol Motor Speedway in Bristol, TN. K-VA-T sponsors a number of local community events at the Speedway including Food City Family Race Nights. The retailer has signed separate licensing agreements with the track to feature selected private brand lines to be sold exclusively at the concession stands such as its Misty Mountain bottled water that the retailer bottles itself.
According to Smith, Bristol Motor Speedway is the fourth largest sporting venue in the United States. The track seat 160,000 people and on a given weekend will attract more than 300,000 visitors to watch a racing event. By comparison, the town of Bristol has a population of 50,000.
Community Service
“Many of the towns in which we operate are small to medium in size in terms of population,” says Smith. “Historically for these towns, the supermarket has served as the hub of the community. It is where people congregate, where people see each other and meet each other. When a community does well, we have a chance to do well. That’s really is the philosophy that my dad had and that I have carried forward during my tenure as president and CEO. It has worked very well.” (The father, Jack C. Smith, founded the company in 1955. He passed away in March 2007.)
“Each of our store managers has a budget that he is required to spend — not just allowed to spend – within their communities during the year. And this is to support local schools and local civic groups.
“The recognition by the community that these programs generate not only goes to our stores but it also goes to the store manager who is an important person in that community. The check doesn’t need to come from Steve Smith who the local people don’t know; it needs to come from the store manger who they do know and do care who is running their local store.”
